Kleiner v. Cengage Learning Holdings II, Inc.

United States Court of Appeals
For the First Circuit
No. 22-1451
FRED KLEINER,
on behalf of himself and all others similarly situated,
Plaintiff, Appellant,
v.
CENGAGE LEARNING HOLDINGS II, INC.; CENGAGE LEARNING, INC.,
Defendants, Appellees,
DOE AFFILIATED ENTITIES 1-10,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Kayatta, Lynch, and Gelpí,
Circuit Judges.
Richard Weingarten, with whom David Slarskey, Slarskey LLC,
Edward V. Colbert III, David Koha, and Casner & Edwards, LLP, were
on brief, for appellant.
Michael R. Gottfried, with whom Duane Morris LLP was on brief,
for appellees.
April 19, 2023
KAYATTA, Circuit Judge. Fred Kleiner claims that
Cengage Learning Holdings II, Inc., and Cengage Learning, Inc.
(collectively, "Cengage") committed unfair and deceptive business
practices under Massachusetts law by intentionally obfuscating
information regarding the sales of his published books. Cengage
parries that a choice of law clause in its contract with Kleiner
bars his suit against it. The district court agreed with Cengage
and granted its motion to dismiss. We disagree, and find that the
choice of law clause does not bar this lawsuit. Our reasoning
follows.
I.
Because we are reviewing the dismissal of a complaint,
we take all allegations in the complaint as true and draw all
reasonable inferences in the plaintiff's favor. City of Mia. Fire
Fighters' & Police Officers' Ret. Tr. v. CVS Health Corp., 46 F.4th
22, 30 (1st Cir. 2022). Fred Kleiner is a professor emeritus at
Boston University who has written several academic textbooks. In
2005, Kleiner entered into a publishing agreement with Wadsworth
Publishing Company ("Wadsworth"), Cengage's predecessor in
interest. Under the agreement, Kleiner agreed to author and
deliver certain academic works. Wadsworth, in turn, agreed to
publish and market the works, and to pay Kleiner royalties as
specified in the agreement. The agreement contains two "escalator
levels," which increase Kleiner's royalty percentage once a
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certain number of aggregate units are sold. The agreement also
imposes a reporting obligation: The publisher must "report on the
sale of the Work in March and September of each year, for the six-
month period ending the prior December 31 and June 30,
respectively." Finally, the agreement contains a choice of law
provision, which states that "[t]his Agreement shall be construed
and governed according to the laws of the State of New York."
Cengage is a publisher and distributor of textbooks and
other academic material. It acquired Wadsworth and, with it, a
relationship with Kleiner. Cengage and Kleiner thereafter twice
amended the agreement without changing the choice of law clause.
After entering and emerging from bankruptcy around 2013–
2014, Cengage shifted its focus from a traditional textbook sales
model to a subscription model. In the new model, called Cengage
Unlimited, students can pay a single-price subscription fee per
semester for Cengage's entire catalog, rather than purchasing
books individually. To fit this new business model, Cengage
designed a new method of calculating royalties owed to authors, as
it no longer simply sold discrete units of an author's work. Under
the new method, Cengage allocates the subscription fees users pay
into several different "revenue pools" based on the type of
material included in the subscription (e-books, courseware
supplements, or print rentals) and assigns authors' works into one
of the revenue pools. Authors are then paid royalties from the
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revenue pool based on several variables, including (1) the
author's contractual royalty rate, (2) the number of "uses" of the
work, and (3) the net price as a percentage of total revenue for
each title and product type.
Kleiner claims that Cengage exploited opportunities for
obfuscation and deception that resulted from this new, more complex
method of calculating royalties. Kleiner alleges that Cengage
provided authors with incorrect and otherwise confusing reports,
and then refused to provide straightforward responses to author
inquiries that would have revealed that Cengage was not paying the
full amount of royalties due to the authors. In a proposed amended
complaint submitted along with his opposition to Cengage's motion
to dismiss, Kleiner further alleges that Cengage sought to leverage
authors' confusion by negotiating new agreements with terms more
favorable to Cengage.
Kleiner's putative class action complaint against
Cengage on behalf of himself and other authors alleges a single
count for violation of Massachusetts General Laws Chapter 93A,
which prohibits unfair or deceptive acts or practices in trade or
commerce. M.G.L. c. 93A §§ 2, 11. He seeks declaratory and
injunctive relief requiring Cengage to disclose its royalty
calculation methods and provide reasonable disclosures of royalty-
related information. He also seeks treble damages and attorneys'
fees.
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Cengage moved to dismiss the complaint on the grounds
that the choice of law clause in Kleiner's publishing agreement
bars the assertion of a claim arising only under Massachusetts
law. Cengage also argued that even if Massachusetts law applies,
the complaint fails to state a claim under Chapter 93A.
The district court granted Cengage's motion, reading the
choice of law clause as "mandating that all disputes be resolved
according to New York law." The court held the clause enforceable
and characterized Kleiner's claim as "'essentially duplicative' of
a contract claim"; therefore, the court reasoned, it was barred by
the choice of law clause. The district court did not address
whether the complaint failed to state a claim under Chapter 93A.
Kleiner appealed. He argues that the agreement's
selection of New York law is unenforceable, and that even if it is
enforceable, its selection of New York law to construe and govern
the agreement does not bar Kleiner's statutory claim under
Massachusetts' Chapter 93A. As we will explain, we agree with
Kleiner that the choice of law clause does not bar the assertion
of Kleiner's claim. And because neither party points to any other
respect in which New York and Massachusetts law differ as they
might bear on this dispute, we decline to decide whether the choice
of New York law is unenforceable.
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II.
We review the district court's dismissal of a complaint
de novo. City of Mia. Fire Fighters' & Police Officers' Ret. Tr.,
46 F.4th at 30; see also Robidoux v. Muholland, 642 F.3d 20, 22
(1st Cir. 2011) (applying de novo review to choice of law
determinations).
We begin with the language of the choice of law clause
itself. In determining the scope of that clause, we will assume
without deciding that the parties are correct that we should apply
the choice of law principles of the forum state -- here,
Massachusetts. See, e.g., Patton v. Johnson, 915 F.3d 827, 837
(1st Cir. 2019).
The clause reads, in pertinent part: "This Agreement
shall be construed and governed according to the laws of the State
of New York." Kleiner argues that this clause is too narrow to
govern his claim because it directs only that the "Agreement . . .
be construed and governed" in accordance with the laws of New York.
His claim, he says, is not about how the agreement should be
construed or governed; rather, his complaint asserts that
Cengage's reporting practices are unfair and deceptive, which does
not implicate any dispute concerning the construction of the
agreement.
Cengage counters by pointing to Northeast Data Systems
v. McDonnell Douglas Computer Systems Co., 986 F.2d 607 (1st Cir.
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1993), in which we held that a contractual choice of law clause
precluded the assertion of Massachusetts Chapter 93A claims for
"willfully," "knowingly," or with "bad motive" breaching a
contract, where breach was an essential element of the 93A claims.
Id. at 609–10. But the choice of law clause in Northeast Data
Systems cut a much wider swath than does the clause before us in
this case. That clause stated: "This Agreement and the rights
and obligations of the parties hereto shall be governed by and
construed in accordance with the laws of California." Id. at 609(emphasis added). The much narrower choice of law clause here, by
contrast, is for present purposes the same as the clause considered
by the Massachusetts Supreme Judicial Court ("SJC") in Jacobson v.
Mailboxes Etc. U.S.A., Inc., 646 N.E.2d 741 (Mass. 1995), which
stated that the agreement was "to be construed under and governed
by the laws of the State of California." Id. at 743.
Distinguishing Northeast Data Systems, the SJC found in Jacobson
that this narrower clause did not preclude or govern Chapter 93A
claims. Id. at 746 n.9. The SJC reasoned that because "[t]he
agreement does not state that the rights of the parties are to be
governed by California law but only that the agreement is to be
governed and construed by California law[,] [t]he choice of law
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clause does not purport to bar the application of G.L. c. 93A to
the parties' dealings in Massachusetts." Id.1
Subsequently, in Vertex Surgical, Inc. v. Paradigm
Biodevices, Inc., 390 F. App'x 1 (1st Cir. 2010) (Souter, J.), we
found that a choice of law clause stating that "Massachusetts law
exclusively shall govern all terms of this Agreement" did not bar
a claim brought under a Georgia statute, because "the narrow choice
of law provision" did not state that the "rights of the parties
are to be governed by [Massachusetts] law." Id. at 3 & n.3
(alteration in original) (quoting Jacobson, 646 N.E.2d at 746 n.9).
Similarly, in Valley Juice Ltd. v. Evian Waters of France, Inc.,
87 F.3d 604, 612 (2d Cir. 1996) (citing Jacobson, 646 N.E.2d at
746 n.9), the Second Circuit reversed a district court's dismissal
of a Massachusetts Chapter 93A claim where the choice of law clause
stated that the "Agreement is to be governed by the laws of the
State of New York." The Second Circuit concluded that
"Massachusetts would not interpret the choice of law clause in the
Agreement to bar Valley's [Chapter 93A] claim by requiring that it
proceed under New York law." Id. at 612; see also L'Oreal USA,
1 Jacobson also applied California law to examine a forum
selection clause that encompassed "all actions enforcing this
agreement," and much of the opinion was devoted to determining the
scope of that clause. 646 N.E.2d at 743. Because the SJC was
analyzing different language in that provision (and applying
California law to that language), we examine only its comments on
the separate choice of law clause. Id. at 746 n.9.
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Inc. v. RG Shakour, Inc., No. 08-cv-40064, 2010 WL 3504140, at *5
(D. Mass. Sept. 3, 2010) (finding that Chapter 93A claim survived
notwithstanding choice of law clause stating, "this Agreement
shall be construed in accordance with and all disputes herein shall
be governed by" New York law).2
The clause at issue in this case states only that "[t]his
Agreement shall be construed and governed" according to New York
law. It does not otherwise select any state's law as governing
the parties' rights and obligations that are created by statute.
Nor does it "mandat[e]," as the district court mistakenly asserted,
"that all disputes be resolved according to New York law."
Therefore, the agreement does not suggest that the parties agreed
that New York law would govern the adjudication of a claim that
Cengage breached a statutory duty imposed by Massachusetts law.
This conclusion is supported by Jacobson's determination that a
choice of law clause stating an agreement was "to be construed
2Cengage points to Northeast Data Systems' favorable
citation of an earlier case from the Southern District of Florida,
Scheck v. Burger King Corp., 756 F. Supp. 543, 546 n.1 (S.D. Fla.
1991), which found that a choice of law provision in a franchise
agreement stating that "[t]his Agreement . . . shall be governed
and construed under and in accordance with the laws of the State
of Florida" barred certain Chapter 93A claims. But Scheck pre-
dated Jacobson, and was in any event not a decision by a
Massachusetts court.
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under and governed by" one state's law does not extend to bar a
statutory claim under another state's law. 646 N.E.2d at 746 n.9.
Cengage's argument that it is impossible to resolve
Kleiner's claim without construing the contract does not undercut
this conclusion. Consider for example a simple contract that
contained a choice of law clause like the one in this case, and
stated that A will pay B $1 per book sold by A. Imagine further
that A sold 200 books but convinced B to accept $100 by preparing
and sending to B in Massachusetts a doctored invoice falsely
reporting only 100 books sold. In such a scenario, were there any
dispute about construing the contract (e.g., can parol evidence be
considered?), New York law would govern that question (assuming as
we do here that the choice of law claim is enforceable). But that
fact would provide no reason to preclude a fraud claim under
Massachusetts law, nor would it require that New York law govern
the fraud claim. See First Marblehead Corp. v. House, 473 F.3d 1,
8–9 (1st Cir. 2006) (applying Delaware law to contract and
promissory estoppel claims pursuant to choice of law clause stating
that plan's provisions "shall be governed by and interpreted in
accordance with" Delaware law, but applying Massachusetts law to
negligent misrepresentation claim). So too, here, if Cengage
deceived an author in reporting what royalties were due under the
contract as construed under New York law, nothing in the contract
would dictate the choice of law to be applied in determining
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whether that alleged deception was actionable not as a breach of
contract, but as a violation of Chapter 93A. See Dinan v. Alpha
Networks, Inc., 764 F.3d 64, 68 (1st Cir. 2014) (holding that a
choice of law clause "about the law to be applied in construing
and enforcing the . . . agreement" did not apply to a quasi-
contract duty that "arose outside of that agreement"). We
therefore do not believe that Kleiner's Chapter 93A claim is
precluded by the narrow choice of law clause before us.
Finally, we decline the parties' invitation to rule on
whether Kleiner's complaint otherwise states a claim under
Chapter 93A. Although the parties point out that we could address
this issue in our discretion, we are not obligated to do so. See
Singleton v. Wulff, 428 U.S. 106, 121 (1976) ("The matter of what
questions may be taken up and resolved for the first time on appeal
is one left primarily to the discretion of the courts of
appeals . . . ."). We thus abide by the "general rule" that "a
federal appellate court does not consider an issue not passed upon
below." Id. at 120; see also United States ex rel. Est. of
Cunningham v. Millennium Lab'ys of Calif., Inc., 713 F.3d 662,
675–76 (1st Cir. 2013) (remanding for district court to consider
whether the relator had stated a claim after vacating order
dismissing complaint on jurisdictional grounds).
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III.
For the foregoing reasons, we reverse the judgment of
the district court and remand for further proceedings consistent
with this opinion.
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